- Warren Buffett has grown Berkshire Hathaway's cash pile to more than $300 billion — a record high.
- The famed investor has halted stock buybacks and pared key holdings such as Apple and Bank of America.
- Buffett, 94, is facing a bargain drought and may be preparing to hand over control of Berkshire.
Warren Buffett has been selling shares and stacking up cash at a terrific rate, fanning speculation as to why the world's foremost stock picker is pulling his money out of the market.
Berkshire Hathaway roughly tripled its pile of cash, Treasury bills, and other liquid assets to a record $325 billion over the two years to September 30 (or $310 billion after subtracting almost $15 billion of payables for Treasury bill purchases).
The conglomerate's cash hoard now exceeds Berkshire's total market value just over a decade ago. It accounted for at least 27% of Berkshire's $1.15 trillion of assets at quarter end — the largest proportion in many years.
One big reason for the ballooning cash pile has been a lack of compelling things to buy. Buffett is a value investor who specializes in sniffing out bargains, and those have become rare finds in recent years.
"I have heard every speculative idea imaginable, from accumulating capital for a doomsday scenario to planning to make a gigantic cash dividend," Lawrence Cunningham, the director of the University of Delaware's Weinberg Center on Corporate Governance and the author of several books about Buffett and Berkshire, told Business Insider about the rationale for Berkshire's cash pile.
"Both seem far-fetched," he said. "The most likely cause of cash buildup at Berkshire is absence of attractive capital deployment opportunities."
Cunningham said stocks have surged to record highs, private-business valuations have jumped, Berkshire-owned businesses like Geico and See's Candies can only deploy so much money, and Berkshire's Class A shares have climbed to record levels of about $700,000.
Hot stocks
The US stock market's total value hit a record high of $58.13 trillion on Monday, an unprecedented 198.1% of US GDP last quarter, Wilshire Indexes data shows.
That metric is known as the "Buffett Indicator" because the investor once hailed it as an excellent yardstick for valuations. Buffett said it should have been a "very strong warning signal" when the measure spiked during the dot-com bubble, and buying stocks when it nears 200% is "playing with fire."
The Wilshire 5000's elevated level makes "this stock market the most overvalued in history — even higher than at the peak of the tech bubble in 2001-2002," Paul Dietrich, chief investment strategist at B. Riley Wealth Management, told BI.
It may be little surprise, then, that Buffett didn't buy back a single Berkshire share last quarter after spending $20 billion on repurchases between the start of 2022 and June 30 this year — likely because he and his team no longer see their company's stock as good value.
His team has also been paring Berkshire's stock portfolio. They sold $133 billion of stock — a sum that exceeds Citigroup's market cap — in the first nine months of this year, and bought less than $6 billion worth over the same period.
They cut Apple, their most valuable holding, by 60% in that timeframe. They also trimmed Bank of America, their number-two holding, by 23% between mid-July and early October.
Less buying and more selling fueled a $140 billion-plus increase in Berkshire's cash hoard in the nine months to September 30.
Frustration and preparation
There are other possible explanations for Berkshire's towering cash pile. Buffett suggested in May that a potential increase in capital gains tax factored into his decision to realize some of his massive gain on Apple — although Donald Trump's reelection is expected to stave off a near-term increase.
The "Oracle of Omaha" is earning much more on Treasury bills now than three years ago when interest rates were close to zero. On September 30 Berkshire owned $288 billion worth — more than the Federal Reserve.
The 94-year-old billionaire may be crystallizing some of his gains on winning bets like Apple to safeguard his legacy. He might also be cleaning up his portfolio and setting aside cash in anticipation of Greg Abel, the boss of Berkshire's non-insurance operations, succeeding him as CEO.
David Kass, a finance professor at the University of Maryland who's been following Buffett for nearly 40 years, suggested the investor may be "preparing for the transition to Greg Abel and enabling him to decide how to invest those funds, along with Ted Weschler and Todd Combs," referring to Buffett's two investment managers.
Buffett might also be socking away money because he sees trouble ahead.
"He has a history of selling out of the stock market when the leading economic indicators, inverted treasury yields, and his famous Buffett Indicator are signaling a bear market or a recession is coming," Dietrich said.
Buffett could tap his cash pile to rebuy Apple and other stocks he's sold at a significant discount "after the current nose-bleed stock market highs eventually come back down to earth," Dietrich added.
Whether Buffett is purposely building the Noah's Ark of rainy-day funds because he expects a crash or economic collapse, or has simply been priced out of markets, he's poised to have plenty of firepower to once again scoop up cut-price stocks and businesses if a downturn does materialize.